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8 Ways to Formulate Your Next Recession Investment Strategy

This year marked the financial crisis’ 10th anniversary, which was sparked by the failure of Lehman Brothers. What turned into the Great Recession prompted many to wish they had a better recession investment strategy. Since then, our economy and the stock market hasn’t just crawled back, it’s run a steady marathon forward. In fact, we are in the midst of the second longest economic expansion in U.S. history.

But, like death and taxes, one other thing in life is certain—recessions follow expansions. What goes up must come down. While no one knows when the next recession will knock on our door, experts believe a recession may make its next appearance as soon as 2020. That means now is the time to start thinking about how you can develop a recession-proof investment strategy.

How to invest before a recession

No matter who we are or what we do, our pre-recession strategy should involve preparing for the worst and protecting our assets so we come out of the downturn with few, if any, scars. In honor of the 10th anniversary of the crisis, we’ve developed eight things to consider as you formulate your recession investment strategy.

  1. Re-evaluate your current investment strategy. We’ve been riding a smooth, steady, upward financial wave for 10 years. And, we’re all 10 years older. Does your current investment strategy match your propensity for risk? Check in with your financial planner to make sure you’re on the right course.
  2. Consider your current life chapter. In addition to your risk tolerance, also consider your age and your current life phase. Younger investors who have time on their side may decide to do nothing, while those close to retirement will want to ensure their principal assets stay intact.
  3. Fight the fear in financial planning. During the financial crisis, the S&P 500 plummeted 56 percent between October 2007 and March 2009, and shareholders lost a collective $11 trillion in market value. But do you know what? Most regret panicking and selling. After all, since 2009, the S&P 500 has risen 300 percent. Plus, if you stay in the market, you’ll continue to collect dividends, which you can use to buy more stock at bargain-basement prices. Buying these bargains has helped the market recover—in general, during the first 40 days of a bull market, we recover 25 percent of what has been lost.
  4. Rebalance. Look at your portfolio to ensure you have the right balance of U.S. and international stocks, as well as bonds. The balance should fit your risk tolerance.
  5. Think globally. Speaking of international stocks, they have several redeeming qualities: they make up 45 percent of the world’s market; they have greater potential for growth, especially in emerging markets; and they generally trade lower.
  6. Rethink your junk. If you are investing in high-yield or junk-rated debt, you may want to reconsider. High-yield bonds may pay higher interest, but they also are most at risk during an economic downturn.
  7. Question assumptions about cash. Think twice before converting investments to cash. Yes, you may protect some assets, but if you time it wrong, you could lose out on profitable gains. That said, i you are in your 60s and already withdrawing from retirement funds, you may want to pull one to two years’ worth of living expenses and put them into a money market or other low-risk account. This will give you peace of mind as well as a financial cushion.
  8. Keep (or get) your financial house in order. Outside of investing, take the Warren Buffet approach to getting your financial health in order. His company, Berkshire Hathaway, has less debt than it can afford. It’s wise to do the same for business and personal finances.

Staying the course

If predictions hold true that the next recession takes place in 2020, we will have enjoyed the longest economic expansion in our history (the longest so far was the 10 years between 1991 to 2001). So, knowing the next recession may be just around the corner, it’s important that you set a steady course for your recession investment strategy. We’d love to help get you there! Contact us or call (920) 230-2215, and we’ll answer your questions on how to invest before a recession.